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US-China Trade War First Shots Fired by Both Sides

July 6, 2018 by Peter Nisbet

The first shots have been fired in what may be a messy US-China trade war. After the US imposed $34 billion of tariffs annually on imports from China, it has in return been hit with $34 billion of tariffs of US goods entering China. This is just the start of a genuine trade war between the two countries and the world’s two largest economies.

US-China Trade War: 25% Tariffs Applied by Both

According to the People’s Daily, the Chinese Communist Party newspaper, the Chinese $34 billion list includes imports from the US of electric vehicles, pork, and soybeans. The tariff rate imposed by China on US goods is 25%, exactly the same as the rate applied by the US to Chinese goods. US action has been mirrored exactly by China, other than the fact that different types of goods are involved.

China held back on its tariffs until it was clear what the US was doing. It stated that it was considering reporting the US to the World Trade Organization Friday on the basis that is in breach of international trade law. Neither side appears keen to back down, and the immediate effect will likely be an increase in the price of soy meal.

Trade Surplus and Intellectual Property Theft

Although talks have been taking between the US and China, neither side seems keen to yield. China will likely continue with a tit-for-tat approach to tariffs meantime. The White House is looking to Congress to considering tightening up China’s involvement in US technology investment.

The Trump administration is concerned about the intellectual property theft it claims the Chinese are involved in. This and the large trade surplus that China enjoys is what is behind the US-China ‘trade war.’ President Trump wants the surplus reduced, or even eliminated, before considering relaxing the import tariffs.

Trump Administration to Expand Product List Involved

In fact, the Trump administration intends enlarging the range of products involved. It is considering adding another $16 billion tariffs to the list within two weeks. Trump has also stated that the total may shortly be expanded to $500 billion of Chinese goods. Analysts and observers regard this as a form of protectionism that acts against the concept of free trade. It could undermine the way trade has been carried out globally for many decades.

The countries will no doubt talk, although interference by individuals will almost certainly work against a reasonable compromise being possible. Many worry about the effect a protracted US-China trade war will have on global markets and general economic recovery. There seems little likelihood of either side backing down any time soon.

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